By SEAN WARD
The Orange County manufacturing and warehousing market remains very strong, despite rising interest rates and concerns about manufacturers heading overseas.
The reason for the strength: supply and demand.
Supply continues to dwindle as vacancy rates for North County, which accounts for about half of the manufacturing and warehouse space in OC, dropped to 2.6% in the quarter, down from 2.9% in the fourth quarter.
Vacancy in South County dropped to 3.4% in the quarter from 4.1% in the fourth quarter, with the John Wayne Airport area vacancy rate steady at 3.7%.
West County saw the only vacancy increase in the period, up from 2.7% in the fourth quarter to 3.8% in the first quarter.
But West County’s vacancy increase is a unique case,a product of Panasonic Corp. vacating its 340,000-square-foot building, which has been available since mid-2005.
OC’s manufacturing and warehouse companies continue to show strong demand for space.
The national economy has been strong, with OC standing out as one of the best in the U.S.
Demand for warehouse space also is a product of OC’s proximity to the ports of Los Angeles and Long Beach,the two busiest in the U.S.
Roughly 43% of all domestic imports come in to the U.S. through these two ports.
Since these goods need a place to be stored, warehousing properties in the Southland remain in high demand.
Rising interest rates likely will help put the breaks on OC’s extremely hot sale market.
The effect of the rates may take some time to see, however, as the average asking price of manufacturing and warehouse buildings increased 7.5% in the first quarter to $135.86 per square foot, up from $126.39 per square foot during the previous quarter.
Most of the softening we are seeing in the sale market has been with second and third generation buildings.
Buyer activity for new buildings still is very strong.
The biggest demand is for small buildings.
Most of the 706,131 square feet of buildings under construction are in the 2,000- to 10,000-square-foot range.
Rising interest rates should have a positive impact on the leasing market as more prospective buyers are forced to take a look at leasing.
As a result, an already tight leasing market will be further constrained and this pressure will surely push lease rates up.
Ward is an associate in the Anaheim office of CB Richard Ellis Group Inc.
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